Egypt: Time to Entrench Growth and Make It More Inclusive
IMF News, January 23, 2018
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- Published: January 23, 2018
Macroeconomic recovery and context
- Egypt’s economy is recovering after major recent challenges; recovery is supported by prudent macroeconomic policies and initial bold reforms.
- Key improvements noted:
- GDP growth is strengthening.
- Inflation is declining.
- The government trimmed the budget deficit.
- Tourism revenues and remittances are increasing.
- Foreign exchange reserves have been rebuilt.
- The floating of the pound and initial steps to improve the business climate have helped boost growth.
- Reform program timeline and support:
- The government initiated an IMF-supported arrangement in November 2016.
- On December 20, 2017, the IMF Executive Board approved the third installment of the three-year, $12 billion Extended Fund Facility.
Policy priorities to entrench stability
- Preserve exchange rate flexibility and further reduce inflation.
- Continue lowering the budget deficit to contain public debt.
- IMF-suggested measures to achieve these objectives:
- Collect more revenue to pay for social services and to invest in education, health, and infrastructure.
- Reduce tax exemptions.
- Make the tax system more progressive.
- Make tax administration more efficient.
- Analysis in the report suggests revenue could grow by 4 percent of GDP in the medium term as a result.
- Eliminate most fuel subsidies and allow fuel prices to change in line with costs to:
- Protect the budget from movements in global oil prices and the exchange rate.
- Safeguard priority spending on social programs and necessary infrastructure.
Protecting low-income families
- Stabilization should be accompanied by protection for lower-income households.
- Recommended actions:
- Continuously improve the efficiency of social assistance by reducing price subsidies.
- Expand better-targeted cash transfer programs such as Takaful and Karama to free up resources for those who need them most.
- Avoid building up unsustainable public debt while shielding vulnerable groups.
Structural reforms to boost jobs and inclusion
- Egypt needs about 700,000 new jobs every year for its growing population; meeting this requires the private sector to become the main engine of growth.
- Required shifts and reforms:
- The state should step back from certain sectors to make room for private-sector investment and growth.
- Ensure fair competition for private companies in markets for their inputs and products.
- Improve governance and transparency of state-owned enterprises.
- Reduce the perception of corruption.
- Improve access to financing and land.
- Integrate more women and youth into the labor market.
- Quoted IMF assessment:
- “This macroeconomic turnaround at home and the supportive global economic environment provide a unique opportunity to carry the reform momentum into areas that have historically been hard to tackle. Deep and lasting structural reforms are needed to create jobs as speedily as needed for Egypt’s growing population,” said Subir Lall, head of the IMF team for Egypt.
Source: International Monetary Fund; January 23, 2018.
References
- https://www.imf.org/en/News/country-focus
- PRESS CENTER
- latest economic health check
- Egypt: The Economy Is Gathering Strength
- Latest Regional Economic Outlook
- Latest World Economic Outlook
- 5 Things to Know about the IMF and Gender
- Egypt and the IMF
- an IMF-supported arrangement
- Extended Fund Facility
- https://www.imf.org/en/home